The Dai Stablecoin System (MakerDAO)

The MakerDAO whitepaper introduces Dai, a decentralized stablecoin running on the Ethereum blockchain that maintains a soft peg to the US Dollar. Unlike fiat-backed stablecoins, Dai is created through an over-collateralized lending mechanism using crypto-assets. The system utilizes a dual-token model consisting of Dai, the stable unit of account, and MKR, the governance token. Users lock collateral into autonomous Smart Contracts known as Collateralized Debt Positions (CDPs), allowing them to mint Dai against that collateral. To maintain stability, the system uses automated mechanisms like the stability fee and the Dai Savings Rate (DSR) to manage supply and demand dynamics. When the value of the collateral drops below a threshold, the system triggers automated liquidations to ensure the protocol remains solvent. This paper is a foundational document in the decentralized finance (DeFi) movement, demonstrating how algorithmic governance and smart contract systems can replace traditional financial intermediaries to manage liquidity and market volatility in a trustless environment. It remains a key case study for the design of collateral-backed synthetic assets.